Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Saturday, June 4, 2011

Lack of Consideration vs. Failure of Consideration in Contract Law


FAILURE OF CONSIDERATION AFTER CONTRACT FORMATION vs. LACK OF CONSIDERATION AB INITIO (from the beginning)

Failure of consideration occurs when, due to a supervening cause after an agreement is reached, the promised performance fails. (2) See City of The Colony v. North Tex. Mun. Water Dist., 272 S.W.3d 699, 733 (Tex. App.--Fort Worth 2008, pet. dism'd); U.S. Bank, N.A. v. Prestige Ford Garland Ltd. P'ship, 170 S.W.3d 272, 279 (Tex. App.--Dallas 2005, no pet.). In other words, failure of consideration occurs because of subsequent events. See The Colony, 272 S.W.3d at 733. For example, one party's failure to perform its obligations under the agreement may result in the other party's failure to receive the consideration set forth in the agreement. See id.; U.S. Bank, 170 S.W.3d at 279. To establish the affirmative defense of failure of consideration, the defendant must offer summary-judgment proof establishing: (1) the consideration for the property at the inception of the agreement; and (2) that the consideration later failed. See, e.g., National Bank of Commerce v. Williams, 84 S.W.2d 691, 692 (Tex. 1935). 2. It is a general rule in Texas that a party must show that he has complied with his obligations under the contract to be entitled to specific performance. DiGiuseppe v. Lawler, 269 S.W.3d 588, 594 (Tex. 2008). Thus, a plaintiff seeking specific performance, as a general rule, must actually tender performance as a prerequisite to obtaining specific performance. Id. SOURCE: Austin Court of Appeals - 03-09-00713-CV - 6/3/11
 
RELATED CASELAW CLIPS FROM OTHER COURTS OF APPEALS: 

Lack of Consideration 

Consideration is a fundamental element of every valid contract. Fed. Sign v. Tex. S. Univ., 951 S.W.2d 401, 408 (Tex. 1997). Consideration is a present exchange bargained for in return for a promise and consists of benefits and detriments to the contracting parties. Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex.1991). The detriments must induce the parties to make the promises, and the promises must induce the parties to incur the detriments. Id. Lack of consideration occurs when the contract, at its inception, does not impose obligations on both parties. Michol O'Connor, O'CONNOR'S TEXAS CAUSES OF ACTION 86 (2009). The contract lacking consideration lacks mutuality of obligation and is unenforceable. Fed. Sign, 951 S.W.2d at 409. Lack of consideration is an affirmative defense. Doncaster v. Hernaiz, 161 S.W.3d 594, 603 (Tex.App.-San Antonio 2005, no pet.). The existence of a written contract, however, presumes consideration for its execution. Id. Therefore, the party alleging lack of consideration has the burden of proof to rebut this presumption. Id.; see also Edlund v. Bounds, 842 S.W.2d 719, 724 (Tex.App.-Dallas 1992, writ denied) (op. on reh'g) ("A sworn plea of no consideration placed the burden of proof on Edlund to show there was none."). Only a party without the burden of proof at trial may move for summary judgment on the ground that there is no evidence of one or more essential elements of a claim or defense. See TEX.R. CIV. P. 166a(i).

Failure of Consideration 

Failure of consideration, an affirmative defense, occurs when, because of some supervening cause after a contract is formed, the promised performance fails. See TEX.R. CIV. P. 94; U.S. Bank, N.A. v. Prestige Ford Garland Ltd. P'ship, 170 S.W.3d 272, 279 (Tex.App.-Dallas 2005, no pet.). Above, we explained that there is a "lack of consideration" where a purported contract lacks mutuality of obligation. Thus, there is a clear distinction between "lack of consideration" and "failure of consideration." Although the issue of consideration is to be determined as a matter of law, the recital of consideration in a written instrument is not conclusive, and the nature of the real consideration may be shown by parol evidence. Lakeway Co. v. Leon Howard, Inc., 578 S.W.2d 163, 166 (Tex.Civ.App.-Tyler), writ ref'd n.r.e., 585 S.W.2d 660 (Tex.1979) (per curiam).

SOURCE: Burges v. Mosley, 304 S.W.3d 623, 628 (Tex. App.-Tyler 2010, no pet.)

Failure of consideration occurs when, due to a supervening cause after an agreement is reached, the promised performance fails. City of The Colony v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 733 (Tex. App.-Fort Worth 2008, pet. dism'd); U.S. Bank, N.A. v. Prestige Ford Garland Ltd. P'ship, 170 S.W.3d 272, 279 (Tex. App.-Dallas 2005, no pet.). In other words, failure of consideration occurs because of subsequent events. See City of The Colony, 272 S.W.3d at 733; U.S. Bank, N.A., 170 S.W.3d at 279. For example, one party's failure to perform its obligations under the agreement may result in the other party's failure to receive the consideration set forth in the agreement. See City of The Colony, 272 S.W.3d at 733; U.S. Bank, N.A., 170 S.W.3d at 279. There is a clear distinction between lack of consideration and failure of consideration. Burges, 304 S.W.3d at 628. In order to show a failure of consideration there should be evidence that a contract had been formed and that the performance of one of the parties failed. Id. In other words, for consideration to fail, it must have been valid at one point and later fail. Johnson v. Bond, 540 S.W.2d 516, 520 (Tex. App.-Fort Worth 1976, writ ref'd n.r.e.). Lack of consideration, on the other hand, means that there was never consideration. Id.

SOURCE: Corpus Christi Court of Appeals - 13-10-245-CV - 10/21/10

No Consideration as part of the contract to begin with 

Lack of consideration occurs when the contract, at its inception, does not impose obligations upon both parties. Burges v. Mosley, 304 S.W.3d 623, 628 (Tex. App.-Tyler 2010, no pet.). The existence of a written contract presumes consideration for its execution. Id.

Failure of consideration after the contract is entered into A failure of consideration occurs when the plaintiff fails to perform a condition precedent to the defendant's duty to perform. See Nat'l Bank of Commerce v. Williams, 125 Tex. 619, 84 S.W.2d 691, 692 (1935). The doctrine assumes the contract is already in existence. Consideration consists of either a benefit to the promisor or a detriment to the promisee. See Tamez v. Southwestern Motor Transp., Inc., 155 S.W.3d 564, 571 (Tex. App.-San Antonio 2004, no pet.).

SOURCE: El Paso Court of Appeals - 08-07-00090-CV – 2/10/10 - 323 S.W.3d 203 (2010)